How investing changed my life's perspectives

Tuesday, November 25, 2014 Coftea Coftea , Finance 2 Comments

Guest blog by Coftea 

When I was 1 year into work, I tasted the satisfaction of receiving my first AWS and bonus, which is the greatest amount of money that I have ever received. Many things started to become affordable, a weekly trip to restaurant sounds reasonable and getting the latest and the highest priced gadget is a must! I felt empowered during shopping trips to the mall and while I was shopping for a electric shaver, I justified that for a device that I could use for more than 5 years (my previous one did), 400 bucks is totally worth it. Nope, I didn't regret my purchase, I like it and it is an essential item that I use everyday. The reason why it wasn't a good decision is that I didn't give much thought into it when I was buying. I should have done more research and weigh in more options. The shaver went on a huge discount of 25% shortly after I bought it.

Fortunately, I am not someone who spends paycheck by paycheck, or what Chinese call 月光族. I was brought up in a family that values savings. I have to fight hard to convince (and irritate) my parents so that they will fork out the extra dollars for a nicer looking bag, shoe or clothing that I fancy in my younger days. I understood the lessons that they are teaching me, but like everyone else, I sought to earn more money. Buying stocks was the first thing that came to my mind as it has been so frequently associated as an avenue to make easy money. A former course-mate who is always on SGX and his trading account told me that on good months, he earns 1k to 2k in the stock market. What!@#! That's pretty awesome for a student! His caution on losing money was totally ignored.

1. Earning big incomes doesn't mean you are rich

I used to associate rich people with their fancy jobs. A doctor, lawyer, banker, trader or business owner must be affluent. My reasoning is simple, they just earn significantly more income than average office workers do. They are paid highly to be the true experts in their field of work. How can someone like them be poor? Well.. Companies go bust and the economy may take a turn. When the source of income is being cut, these high income earners can fare worse than average earners. They will need more money to finance their big houses, big cars or an extravagant lifestyle. Do they move on and work harder to keep up? What if there are no better opportunities? I have no longer measure rich in monetary terms. As I have learned and experienced, rich is measured in terms of how long can you sustain your lifestyle when you quit your day job. I may be paid an average wage, but if I have savings and money making investments that can last me a long time, I am rich. Moreover, a job is more of an interest than a job by then. People who achieve financial freedom are the ultimate rich people.

Can your lifestyle remain without a job?

2. Things you owned aren't assets

Traditional thinking dictates that your house is an asset that you should treasure. My accounting course during school days reaffirmed this concept that property, plants, equipments or even furniture should be classified as assets in a balance sheet. Basically, your belongings are your assets. However, do you consider your car that you have to pay a hefty monthly installment an asset? Extend that to the house that you are living in. If they are your assets, why are you still paying for them? In the pursuit of financial freedom, these so called assets will be the things that hinder you in your journey. You will still need to make money and finance them, making them a liability instead. As long as you still need to pay for a possession, it's better not to call it an asset. The best assets help to generate money, such as your second house that you rent out, the computer that you freelance on or the vehicle that can bring in the dough. I wished my accounting teacher had cautioned this to me.

Are you paying just to own something?

3. Don't rely on a job for financial security

I have heard so many cases of loyal workers being retrenched after spending most of their life with a company. Being so devoted to a specific function, they may have mismatched skills in the open market, making it difficult for them to strike out again. Moreover, loyalty is much less valued in modern companies. If you are familiar with turnaround companies, restructuring and cost cutting measures which turns a net loss into a net profit are welcome signs that shareholders celebrate. But do the shareholders care how many people have lost their jobs in the process? As long as the shareholders are happy, the company's management will continue to reduce their bottom line. What all this means is that one cannot believe in a iron rice bowl, and there is no financial security if you only depend on your job for income. I was taught to study hard, get good grades and find a stable job to support myself. This is only the first step everyone takes. The next will be to find alternative streams of income, channeling resources from the first step we took.

Hmm.. How can we cut cost further? 1

4. Buy worthy things

I am sure everyone has suffered from an impulse purchase. The merchandise feels good, looks nice and is made by a reliable brand. Most importantly, it is on a sale! So the next day, it is sitting in your house and you noticed that it isn't as great as it seemed yesterday. Yes, I have many shoes and clothes that do not see the light again after a few times of usage. Part of being an investor means being able to properly size a portfolio and know what type of investment that should be added next. If I have enough growth stocks, I may want to look for some dividend stocks and start my research on REITS and business trusts. Similarly, I can shop for things that I need, rather than finding a need for the things on sale. The temptation is still there, but I make it a point to give deeper thoughts to my purchase, just like what I would do when I analyze a company. How will it improve my current situation? Will I use it tomorrow? How long do I use it daily? Do I already owned something of similar function? On top of saving money, this habit motivates me to get quality goods that I can enjoy longer.

How many pairs of shoes do you really need?

5. Great businesses are around you

This realization is mostly influenced by Peter Lynch, who firmly believe that common investors can beat the professionals at their game. When I started out to look at stocks, I thought that the only way to spot awesome companies is to dig through tons of annual reports and web content. The research method is fine, but wouldn't it be better if I am already one of the customer of a good company? If I have had known this earlier while I was gorging on a pork floss bread, sipping an aromatic Toastbox coffee and admiring how efficient their staff was, I would have already gained more than 150% return on Breadtalk in just over 6 months. Here is one company that I understood more than the professionals, because its success was in my face! These golden opportunities do present itself around us from time to time. Be it a new mobile app, piece of hardware, type of drink or way of disposing waste, if they are good products and making waves in the community, I am sure to do some background check on the company behind it. I want to own both the product and the company!

I am sure many of us will agree that our education system is great at teaching us skills that allows us to earn. As part of continual learning, my investing journey have showed me what isn't being taught: to spend wisely. I may be able to pick these things up as I age and experience more in life, but investing has truly accelerated my learning. 千里之行，始于足下. A journey of a thousand miles begins with single step, I am glad I have taken mine.

Photo Credits
¹ By Sebastiaan ter Burg at https://www.flickr.com/photos/ter-burg/
² From http://www.breadtalk.com.ph/index.php